September 1, 2015

ACA Employer Shared Responsibility Provisions: Will they affect your business?

The federal government granted a reprieve in 2015 for certain-sized employers from many of the mandates of the Affordable Care Act (ACA). It didn’t, however, free them from others. Given the potentially confusing nature of these changes, we sat down with John Foster, CPA to talk through the key regulator changes to the ACA, and to discuss what you need to know for 2015.

Foster_JohnQ: Let’s start with who should care about the ACA Employer Shared Responsibility provisions. Who will this affect in 2015?

A: The new rules affect employers with at least 50 full-time employees (someone employed for an average of 30 hours per week) or a combination of full-time and part-time employees (for example, 40 full-time employees and 20 part-time employees) that is equivalent to 50 full-time employees. Such business owners are known as “applicable large employers”—you’ll see that term around a lot.
Whether you are considered an applicable large employer for the year can be determined by simply counting how many full-time equivalent employees you had last year based on a month-to-month average.  

Applicable large employer status applies whether you’re for profit, non-profit, public or private. If you own multiple companies, combine the number of people you employ to determine whether or not you are an applicable large employer. If so, then each separate company you own is subject to the Employer Shared Responsibility provisions—let’s call them “ESR” provisions for the sake of this article—even those companies that individually do not employ enough employees to meet the threshold .

Q: What other circumstances can affect whether an employer owes an ESR payment?

A: For 2015 and after, an applicable large employer will be liable for an ESR payment only if:

  • They do not offer health coverage at all, or offer coverage to fewer than 70% for 2015 and 95% thereafter of their full-time employees (and the dependents of those employees), AND at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace or “Exchange”


  • They offer health coverage to all or at least 70% in 2015 and 95% thereafter of their full-time employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace. This may occur because the employer did not offer coverage to that employee, or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value

Q: What dictates “affordable” coverage?

A: If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered “affordable”. Because employers generally don’t know their employees’ household incomes, employers have three optional “affordability safe harbors” that they can take advantage of based on information the employer has available to them.

Q: What is an “affordability safe harbor”?  

A: They are basically ways for employers to designate an offer of coverage as “affordable” regardless of whether it was truly affordable to the employee for purposes of the premium tax credit. Safe harbor options include:

  • Determining affordability based on the employee’s Form W-2 wages
  • Determining affordability based on the employee’s usual rate of pay
  • Determining affordability based on the federal poverty line

These safe harbors are all optional. Employers can use one or more of the safe harbors as long as they offer full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan. Employers may choose to use safe harbors for all of their employees or for any reasonable category of employees as long as they do so on a uniform and consistent basis. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost “self-only” option available to the employee that also meets the minimum value requirement.

Q: How do you know if a plan provides “minimum value?”

A: A plan provides minimum value if it covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan. You can estimate this by using the minimum value calculator created by the Department of Health and Human Services and the IRS.

Q: Are there any other caveats regarding whether an employer will owe a payment?

A: Yes, a few. First of all, an applicable large employer will not be subject to an ESR payment solely because any employees purchase health insurance coverage for their spouse or dependents through a Marketplace or enroll their spouse or dependents in Medicare or Medicaid as long as the employer meets the affordable health coverage requirement. Also, they won’t be liable for a payment unless a full-time employee receives a premium tax credit.

Q: So let’s say an employer does owe a payment. How do they determine how much it will cost?  

A: In general, if the employer meets the criteria above for owing an ESR payment, the cost will be equal to the number of their full-time employees for the year (minus up to 30) multiplied by $2,000. Note, though, that for purposes of this calculation a full-time employee does not include a full-time equivalent. 

Q: You said full-time employees “minus up to 30”… Why is that?

A: There is an exclusion for up to 30 employees in the payment calculation. However, if the employer is related to other employers, then the 30-employee exclusion is allocated among all the related employers in proportion to each employer’s number of full-time employees.  

Q: What if an employer offers coverage for some months, but not others?

A: In that case the payment is computed separately for each month for which coverage was not offered. You calculate monthly payments in this scenario by multiplying the number of full-time employees for the month (minus up to 30) by 1/12 of $2,000.   

Month-by-month calculation actually applies in another scenario, too: If an employer offers coverage to at least 95% of their full-time employees, but has one or more full-time employees who receive a premium tax credit. In this case the payment is computed based on the number of full-time employees who received a premium tax credit for that month multiplied by 1/12 of $3,000. 

Q: Are there any limits to how much can be owed?

A: Yes; the amount of the payment for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 30) multiplied by 1/12 of $2,000. This ensures that the payment for an employer that offers coverage can never exceed the payment that employer would owe if it did not offer coverage.

Q: How will an employer know when they are expected to make an ESR payment?

A: The short answer is that the IRS will let the employer know. If an employee receives a premium tax credit, the IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond befor

Q: Is there anything else applicable large employers need to know about ESR payments?

A: Yes, actually. It is possible they may not owe any ESR payments in 2015 thanks to a transitional relief clause in certain cases if they had fewer than 100 full-time employees (including full-time equivalents) in 2014. For employers with non-calendar-year health plans, this applies to any calendar month during the 2015 plan year, including months during the 2015 plan year that fall in 2016. 

Q: How does an employer qualify for payment relief?

A: The employer has to meet three key conditions for ESR payment relief  for 2015. Essentially, they are eligible for relief if:

  • They employed at least 50, but fewer than 100 full-time employees (including full-time equivalents) on average during 2014 business days
  • They did not reduce the size of their workforce or the overall hours of service of their employees (except for bona fide business reasons) between February 9 and December 31, 2014 in order to qualify for the transition relief
  • They do not eliminate or materially reduce the health coverage, if any, that they offered as of Febre any liability is assessed/payment is expected. uary 9, 2014 between that date and the end of their 2015 policy year. The employer will qualify as not reducing coverage as long as:
  • They continue to offer each eligible employee an employer contribution toward the cost of employee-only coverage that is either at least 95 percent of what they offered on February 9, 2014, OR at least the same percentage of the cost of coverage offered on February 9, 2014
  • In the event of a change in benefits under the employee-only coverage offered, the coverage still provides minimum value after the change
  • The employer does not alter the terms of its group health plans to narrow or reduce the class or classes of employees (or their dependents) to whom coverage was offered on February 9, 2014

For periods on or after the last day of an employer’s 2015 plan year, the transition relief for 2015 generally is not available.  

Q: Is there any new tax paperwork required for all of this?

A: Isn’t there always? Employers who had more than 50 full-time equivalent employees in 2015 will need to provide employees with IRS Form 1095-C no later than February 1, 2016 so that they can be filed with employees’ federal income tax returns. Form 1095-C (used to report information about each employee) must be filed along with Form 1094-C (used to report summary information for each employer and to transmit Forms 1095-C to the IRS) by February 29, 2016, or March 31, 2016, if filing electronically.  

Q: Finally, what about small employers? Do they need to be concerned about these regulations?

A: No and yes… As long as employers stay below the 50 full-time employee threshold, they won’t be subject to ESR provisions for now. The vast majority of businesses in the world employ less than 50 full-time people, so the ACA ESR provisions shouldn’t be too much of a concern for most. That said, the ACA ESR provisions are certainly something employers should be aware of if there is a possibility their business with expand beyond 50 employees.

Q: These are clearly complicated issues, but thank you for helping to clarify the main points. Do you have any additional advice for those dealing with the ACA ESR provisions for the first time?

A: Sure. Your best bet is to talk about your specific situation with an employee benefits expert if you have a chance—as you said, these aren’t exactly simple regulations to follow. We have a variety of specialists at Hobe & Lucas who would be pleased to discuss anything related to the ACA. 

Give us a call at 216-524-8900 and we’ll help you make sense of everything!

Hobe & Lucas Certified Public Accountants, Inc. is a full-service accounting and business consulting firm dedicated to providing clients with exceptional value.

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